Abbott Laboratories (ABT) Q2 2018 Earnings Report, Transcript and Summary

Good morning and thank you for standing by. Welcome to Abbott's Second Quarter 2018 Earnings Conference Call. [Operator Instructions] This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; and Brian Yoor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks, and Brian will discuss our performance and outlook in more detail. Following their comments, Miles, Brian and I will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2018. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, through our Annual Report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2017. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. Please note that second quarter financial results and guidance provided on the call today for sales, EPS and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which adjusts to 2017 basis of comparison to exclude the impact of exchange and historical results for Abbott's Medical Optics and St. Jude's vascular closure businesses, which were divested during the first quarter of 2017 as well as the current and prior year sales for Alere, which was acquired on October 3, 2017. With that, I will now turn the call over to Miles.

Okay. Thanks, Scott, and good morning. Today, we reported ongoing earnings per share of $0.73, above our previous guidance range. We also raised our full year adjusted earnings per share guidance and narrowed the range to $2.85 to $2.91, which now reflects 15% growth at the midpoint. All 4 of our businesses exceeded expectations in the quarter and contributed to 8% organic sales growth overall, above our previous guidance range. Over the past several years, we've executed a very deliberate strategy of shaping our portfolio, both adding and pruning. At the same time, we've also invested organically in growth areas that have resulted in game-changing technologies such as FreeStyle Libre and Alinity. These steps have created leadership positions in attractive areas in health care, where innovation makes a big difference for the customers we serve and consequently for our performance. The strong results we're achieving are a direct result of this strategy. Over the past 4 quarters, we've averaged more than 7% organic sales growth, a true differentiator for a company our size. And with synergies from recent acquisitions and our focus on margin expansion, we're able to fully fund our growth opportunities while at the same time, growing earnings significantly faster than sales. We continue to forecast strong performance for the remainder of the year, as evidenced by the fact that we're raising our full year earnings guidance despite the recent strengthening of the U.S. dollar. Clearly, we'd be raising guidance a bit higher if based solely on the underlying performance of our business. I'll now summarize our second quarter results before turning the call over to Brian. I'll start with Diagnostics, where we achieved sales growth of 6.5% in the quarter, including 8% international growth in our core laboratory business. The pace of our Alinity launch in Europe continues to accelerate, driven by strong competitive win rates and even stronger retention rates. This business, which is already a global leader and growing faster than its market, is well positioned for sustainable growth for years to come as we capture share and roll out the full suite of Alinity systems across additional geographies, including the U.S. In Rapid Diagnostics, second quarter sales were driven by infectious disease and cardiometabolic testing. The management team has done an excellent job integrating and stabilizing the business, identifying and realizing synergies and implementing strategies to drive long-term growth. In Established Pharmaceuticals, or EPD, where we built leading positions in the fastest-growing pharmaceutical markets in the world, sales grew more than 12% in the second quarter. EPD continues to execute its unique strategy and is growing faster than the market in several of its priority countries, including India and China. Our focus on enhancing the depth and breadth of our product portfolios and local capabilities continues to strengthen our position and long-term growth opportunities across these markets. In Nutrition, sales increased 6.5% in the quarter, led by strong performance across our international business. We've now achieved several consecutive quarters of improving performance for this business. In Adult Nutrition, growth was led by our market-leading Ensure and Glucerna brands, most notably internationally, where we saw double-digit growth. In Pediatric Nutrition, strong performance was led by balanced growth across several countries in Asia, including Greater China and Latin America. And lastly, I'll cover Medical Devices, where sales grew more than 8%, led by strong double-digit growth in Electrophysiology, Structural Heart and Diabetes Care. In Electrophysiology, growth of 22% was led by our advanced cardiac mapping and ablation portfolio as well as Confirm, the world's first and only smartphone-compatible insertable cardiac monitor. During the quarter, we further strengthened our product portfolio in the U.S. with the launch of our Advisor HD catheter, which includes a first of its kind configuration to create highly detailed maps of the heart. In Structural Heart, strong growth across several areas of our portfolio was led by MitraClip, our market-leading device for the minimally invasive repair of mitral heart valve. Earlier this month, we received U.S. FDA approval for our next-generation version of MitraClip, which includes design enhancements and an additional clip size to enable more patients to be treated. In Vascular, during the quarter, we received FDA approval for XIENCE Sierra, the newest generation of our leading coronary stent system, which will enhance our competitiveness in the U.S. market. And we also received national reimbursement for XIENCE Sierra in Japan during the quarter. Lastly, in Diabetes Care, sales grew over 30% for the third consecutive quarter, driven by FreeStyle Libre, our highly differentiated sensor-based glucose monitoring system. Libre offers a true mass-market opportunity with its unique combination of affordability, accessibility and ease of use, and it's achieving a level of patient adoption that's unprecedented in the industry with more than 800,000 current users globally. So in summary, this was another very good quarter as we execute on our strategic priorities. All 4 of our businesses exceeded expectations for the quarter and contributed strong growth overall. And lastly, we started the year with strong double-digit EPS guidance. And despite recent currency shifts, today, we're raising our outlook even higher based on the strength of our underlying performance. I'll now turn the call over to Brian to discuss our results and outlook for the year in more detail. Brian?

Thanks, Miles. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results. Sales for the second quarter increased 8% on an organic basis, above our previous guidance range. Sales in Rapid Diagnostics, which was acquired late last year and is therefore not included in our organic sales growth results, achieved sales of $484 million. Exchange had a favorable year-over-year impact of 1.7% on second quarter sales. During the quarter, we saw the U.S. dollar strengthen versus several currencies, resulting in a less favorable impact on our sales this quarter compared to expectations had exchange rates held steady since the time of our earnings call in April. Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.2% of sales. Adjusted R&D investment was 7.1% of sales, and adjusted SG&A expense was 30.7% of sales. Turning to our outlook for the full year 2018. Based on our strong performance and momentum, we're increasing our organic sales growth forecast to 6.5% to 7.5%. At current exchange rates, we would expect exchange to have a favorable impact of around 50 basis points on full year reported sales, which would be around 170 basis points lower than expectations based on exchange rates in April. In addition, we continue to expect Rapid Diagnostics to contribute sales of a little more than $2 billion. We continue to forecast an adjusted gross margin ratio of somewhat above 59% of sales, which includes underlying gross margin improvement across our businesses. We forecast adjusted R&D investment of around 7.5% of sales and adjusted SG&A expense of somewhat below 30.5% of sales. Turning to our outlook for the third quarter of 2018. We forecast an adjusted EPS of $0.73 to $0.75. We forecast organic sales growth of mid- to high single digits. And at current rates, we expect exchange to have a negative impact of approximately 2% on reported sales. And in addition, we expect Rapid Diagnostics to contribute sales of approximately $500 million in the third quarter. We forecast an adjusted gross margin ratio of around 59% of sales, adjusted R&D investment of around 7.5% of sales and adjusted SG&A expense of around 29.5% of sales. Before we open the call for questions, I'll now provide an overview of our third quarter organic sales growth outlook by business. For Established Pharmaceuticals, we forecast mid- to high single-digit sales growth, which takes into consideration our strong third quarter results last year when quarterly sales patterns in India were impacted by the implementation of the new tax system in that country. In Nutrition, we forecast mid-single-digits growth for the third quarter and are increasing our full year forecast for 2018 to mid-single digits as well. In Diagnostics, we forecast mid- to high single-digits sales growth. And in Medical Devices, we forecast high single-digit sales growth for the third quarter and are increasing our full year forecast for 2018 to high single digits as well, which reflects continued double-digit growth in several areas of the business. With that, we will now open the call for questions.

[Operator Instructions] And our first question comes from David Lewis from Morgan Stanley.

Miles, 2 dynamics that really stand out to us this quarter in addition to, obviously, the stronger organic number. Just international Nutrition recovery and obviously, the Libre progression. So can you just give us some details on sort of the drivers of Nutrition acceleration, the sustainability in the back half of the year? And then Libre, where it is relative to your plan and your comfort with maybe $100 million number in U.S. Libre this year, and I had a quick follow-up.

Okay. In the Nutrition business, I'd say, first of all, we're pleased with the success in performance. It's across the board. It's not in any one place. We've been through pretty detailed reviews and plans by geographic area and so forth. A lot of times, we're talking about Nutrition in terms of either the U.S. or China. In this case, it's actually not concentrated that way. It's really across the board in all the countries we're in. So I'm pretty pleased to see a uniform increase in performance and our plans taking hold and working in a lot of countries internationally. And like a lot of things, it's small things and a lot of them in coordination, blocking and tackling and just doing a better job with our marketing, our positioning in products and so forth. So as far as sustainability goes, I feel like this business ought to be able to perform in a, call it, low to mid-single-digit range on a fairly sustainable basis. And if we can stay in the range we're in, that's pretty good. I feel pretty good about that. And it's up and down depending on promotions and given geographic areas from time to time. We'll see a competitor put on a heavy promotion in something like adult nutrition in the U.S., and it goes away. Share doesn't change much in that case. But long-term sustainable growth here. We continue to maintain our position as the market leader and even advance it in a number of cases. So I feel like it's pretty solid and look forward to it staying at a, call it, a mid-single-digit level. With regard to Libre, we can't be anything but pleased. It's going extremely well. We're on track with where we want to be in terms of patient acquisition and growth, et cetera. We have nothing to compare us to. No real market dynamics to compare ourselves to other than the acquisition of patients, and we expect to go out of the year with over 1 million patients, which is unprecedented and unseen. We think this is a mass-market sort of a product as opposed to a very niche-y medical device type product because there are so many people that are either insulin-dependent or trying not to be insulin-dependent. And so I think the opportunity here remains enormous. I think the growth is quite sustainable. There's quite a lot more to do to keep enhancing not only the product, the offering, the market, so forth. We like the mix of patients we're getting. We like the geographic mix. We like the geographic advancements. The reimbursement has been very good. Just about everything about this is going better than planned. So I think this is one of the key big sustainable growth drivers of the company, along with the system family Alinity in the diagnostic area. We got a number of growth drivers here. Either big innovative products like this or a collection of, call it, smaller innovative niches like we've got in – a niche is probably, to describe it, too small, but a lot of places where innovation makes a big difference in medical devices. And then you've got market growth. And in spite of the volatility at currencies with -- that affect our pharmaceutical or Nutrition business, the underlying market still had very strong growth. And I -- so I think all of our growth drivers look very reliable for the long term.

All right. And just another quick focus for me was the neuromod focus for the quarter. I mean, you're kind of anniversarying some fairly explosive growth in that business. But can you just discuss the relative change in neuromod growth this quarter, the drivers of it, what you're doing to address it? And do you believe this portfolio can get back to market growth?

Yes, good question. I think you've got a couple of things going on here, one of which you observed. Explosive growth last year, which is actually interesting part of the problem, I think this was a bit of a self-inflicted wound. We did -- this is a business where the business is very dependent on the involvement of the representative, the sales representative, et cetera, not only with the physician but also with the patients. And we did not expand our sales force in concert with the rate of explosive growth we experienced. And when we finally did expand our sales force recently, it turns out to be pretty disruptive to do that the way we did it. And I'd say the issue we created for ourselves was disruption in our own sales here with the additions of new salespeople and new service people in the field and so forth. You recut territories, you have a lot of training and so forth. So I think we've added to our comp issue here. So do I think it gets back to market growth? Yes, absolutely. I think this is a temporary condition created by us. It will be fixed by us, and we'll figure out how to successively expand our sales force in concert with our growth in a, let's just call it a much smoother fashion in the future. I think we did this to ourselves.

And our next question comes from Larry Biegelsen from Wells Fargo.

So it looks like based on the guidance, you're forecasting similar growth in the second half once -- adjusting for the Indian GST benefit that we saw in EPD in the first half. So I guess my question is, Miles, why do you feel confident you can sustain similar underlying growth in the second half given that the comps get significantly tougher in the second half? And I had a follow-up.

Well, first of all, the underlying dynamics of our markets underlying are pretty strong. Our single biggest, I guess, forecastable -- or not forecastable concern, is currency. And I think you're going to hear that from a lot of companies. I think we're all seeing a stronger dollar. And in our case, I'll speak for us, we have a significant portion of our business in high-growth markets, most of which are unhedgeable currencies and are volatile currencies, emerging markets, et cetera. And we like the growth and we like the underlying trends and dynamics of those markets, and I think those have proven to be pretty robust and beneficial. But they also come with the unpredictable volatility of currency from time to time. So as I said in my opening remarks, we'd probably be raising guidance even further here, but for currency headwinds that we see for the remainder of the year. And having been through this cycle a number of times, you're always cautious about the second half of the year until you get to about now and see what the currency is doing because the first half of the year, you think you know what it's going to do, but you really can't predict that far out. And it's clearly made a big change since the first quarter. So we've absorbed a fair bit of that negative currency headwind already, and we'll probably end up absorbing more here in the second half. But we think we've got a pretty good handle on what we face. But the underlying dynamics of the real business are all pretty good. Now that said, things never go exactly like you except them to go. And you take a business like our pharmaceutical business, it's lumpy. It's got -- if you've got a year with GST or other factors that create oddball comparables from year later quarters and so forth, you're automatically going to be lumpy the following year again. So in a business that has a mix of emerging markets, it's almost always up-down, up-down, up-down. The good news is even when it's down, the growth rate is still pretty high. So we go from a good growth rate to a great growth rate, to a good growth rate back and forth because it's a bit volatile. One -- last quarter, it was some dynamics in Russia. This quarter, it's comparables to GST. We'll probably have the same thing because, as you recall, that created a sequential quarter comparable issue in the EPD business last year. So we're going to see ups and downs that way in some of these businesses. And like you guys, our first question is, is there something fundamental about the performance of the business, the performance of the market? Or have we just got timing dynamics or volatility dynamics and so forth? The underlying growth rates in EPD remain very strong across our collection of emerging markets. So I think we tend to look at it that way. We address everything we see. I think we're going to see ups and downs here in a lot of these businesses. Look, we see neuromod at a slower growth rate this quarter, as David just pointed out. Do I think the underlying growth dynamics of that market are somehow unattractive? Absolutely not. That market remains very attractive. And do I think we'll do well in it? Yes, we'll do really well in it. But next year, we'll be referring back to this quarter from a comparable standpoint and so forth. So I am quite confident that what I see in the underlying trends of each of these businesses is pretty good. I'm very pleased with Nutrition, very pleased with the acceleration in Alinity, in Diagnostics. I'm pleased with the steady ramp, which only gets better and better with Libre. And those are big, big growth drivers across the board. So while they may go up and down a couple of percentage points here and there, the underlying overall growth rate is pretty strong. And like I said earlier, we'll probably raise guidance further, but for the concern about exchange.

That's helpful. And then for my follow-up, I had to follow up on David's question. Within med tech, there was some pockets of strength like Diabetes and Electrophysiology, but there were a couple of soft spots, like CRM. You've already addressed Neuromodulation and Heart Failure. So any more color on CRM and Heart Failure, how we should be thinking about those segments in the second half of the year?

Yes, there's a couple of dynamics going on with CRM. That one gets a fair amount of my attention, I would tell you. First of all, we got a little bit of a tough comparison to last year because we launched the low-voltage MRI-compatible products then and obviously, had stocking dynamics in the second quarter and so forth. But beyond that, there's also sort of an underlying battery replacement timing thing going on here because when St. Jude, prior to us in '15, '16, had its battery issues, it pulled forward a lot of replacements and -- to replace those batteries. And so you see fewer replacements now because they were pulled forward. Whereas, in the de novo segment, where we got new patients, we're doing extremely well. So when you kind of take it apart, you look at it and say, "Well, if we're right about our diagnosis and analysis here, we should see this pick up in the future with a bit of a tailwind once we get past this replacement phenomenon relative to 2016." So we've looked at that. I think for the rest of this year, we're probably flat in CRM, but that's not a satisfactory position for us. So my expectation is we keep improving the growth rate here. We're not happy with what the growth rate looks like, but we think we understand why. With regard to Electrophysiology and others, geez, they're doing great, as you pointed out. Heart Failure, we need a destination therapy claim, and I think we're going to be in great shape. I think it's that simple.

And our next question comes from Bob Hopkins from Bank of America.

I just have 2, one kind of big picture and one on a divisional level. From a big picture perspective, I think you guys have been very clear on the topic of durable revenue growth. I have a question on durable earnings growth. And the reason I ask the question is that your earnings growth has obviously been running well above your targets. As we go forward, if you're successful in driving the kind of revenue growth you think you can drive in this business, what does a durable earnings growth outlook look like for the company? Is it closer to 15% than 10%? Just any thoughts on that topic would be appreciated.

Many times in these calls, somebody tries to get me to forecast future earnings growth, and I think we start every year with a goal of, in fact, even a long term of double-digit earnings growth. And that -- you might say, well, that sort of backs you into 10% or 9.999% or whatever. And we don't necessarily hit it every single year, but pretty darn close. In some years, it's a lot more than that. So I would tell you that our overall strategy is we want to grow at a double-digit rate. Otherwise, difficult to call yourself a growth company. We got a lot of pieces in this company. We've tried to position it in growth markets, growth segments, growth products, innovative areas and so forth. And we also have some extremely profitable cash-generating legacy businesses that grow slower, but they're still growth. And those businesses, we do look for incremental growth and the kind of delivery of profit that's above the sales growth rate. And overall, that mix has to deliver that double-digit target for us, which is why we've shaped the company as we have over the last 6 years to add growth and prune away some things that may not fit us over the long term. We've tried to put ourselves in the right geographic markets, the right innovative spaces, the right growing health care areas and so forth so -- we've talked about. So -- and we always look for leverage on the bottom line by improvements in margin, gross margin, even our spending efficiency and so forth. So I don't know that I can predict whether it's 10%, 11%, 12%, 13%, 14%, 15%. But I can tell you, we start every year with the presumption, that's our identity, that's our hallmark, that's the mix of our businesses, that's the mix of our products. And we build our product strategies and business strategies to deliver that. There's a lot of things that change, as you know, over the course of the year. A year never goes quite like you expect it to go. And I'm eliminating exchange for a minute here, even just the dynamics of markets, trade, whatever it may be, new product approvals or delays, et cetera. So we got a lot of moving parts. And I think that as a mix of businesses, we've got a really robust, strong, powerful mix of innovative, profitable businesses. We're in a really great new product cycle of launches. Every piece of this has a nice, sustainable long term ahead of it here. And the businesses, you can see the evidence of it growing. So beyond that, I'm not sure I can predict more accurately for you what it's going to be other than we put a lot of growth drivers here. We're not organically getting a lot of growth out of the Alere business this year, as you know, because we're settling that in, but I'm really pleased with its performance. It's above our expectations. And we haven't even begun to see how that's going to deliver for us in the coming years. So I just look at the way we're managing the delivery of the various pieces of our business. We always got a lot of shots on goal here and a lot of products to expand. So I'd tell you, our goal is always double digits. And beyond that, I'm not ready to tell you how many double digits for next year.

Fair enough. But I appreciate the detailed answer. And then one other thing I wanted to touch on really quickly was just if there's one business that seems like it's really done better than you thought at the beginning of the year, it's maybe nutritionals. So I was wondering if you could just talk about what's driven the improvement and how sustainable that is.

Well, I think I'll go back to there's no one thing. Our markets are all a little different. You'd think that infant formula and Ensure wouldn't be that complicated, but it actually is at some level. And the dynamics of each market are a little different. And some -- we've got, in some ways, the same multinational competitors in most of our geographies, but even they don't have the same strategies or even the same products in every market. And then there's always a lot of local or regional competitors. And in a country like Vietnam, we had a very strong state competitor there in Vinamilk. A fine company, and they execute very well. They happen to be really strong in rural areas. We happen to be very strong in big cities. That's a dynamic that's unique to Vietnam. The dynamics we face in the Middle East or other markets in Asia are different. It's -- so it's no one thing, I'm afraid. We can try all those consultant 4-box matrices to sort of say all of these countries are like this and put them in the upper left-hand corner box and so on. But even doing that, that's artifice. It's -- each country is a little different. I'd say, overall, we needed to improve several things. The focus of our products. You can have too many. You can have too few. But you got to have certain ones, you got to have certain innovations, you got to have certain ingredients, and you got to have marketing that appeals to the consumers and/or physicians or hospitals that you're trying to appeal to. It's a little tailored to each market. We literally went country by country, call it, top 15 countries and went through a detailed analysis and new strategies and so forth. You say, well, "Was there a lot of management change?" Actually, not. In a few places, yes, but not that many. It's really us and our execution, and we took that bar up and it shows. It shows. We've got a pretty strong business there. I think we slipped off the rail a little bit for a while. And I'm pleased to see that the top management, which -- some of which is new, has established pretty good direction for each of the major geographies now. And beyond that, it gets to be a lot of little details that you got to execute better. We've seen a lot of channel change. We've seen a huge impact of online or digital marketing, digital shipment, et cetera, as channels. We've seen specialized channels of all baby stores and so forth. We've -- so we've -- I think we were slow to adjust and adapt to that. I think others did it faster than we did, and we got left behind. We now understand what we missed. We understand what we needed to do about it. And we've either done it or we're doing it, and it clearly shows and makes a difference. So I think we had to be pretty honest with ourselves about mistakes we'd made or things we'd missed. And now we're correcting that with a vengeance and running hard here. So I think the execution is a lot better.

And our next question comes from Glenn Novarro from RBC Capital Markets.

Miles, 2 questions on Libre. First, can you give us a little bit more color on the U.S. rollout and where you are with commercial coverage? And are you still comfortable with your Libre guidance for the year, which, in the U.S., I think is $90 million to $100 million? And then I had a follow-up.

Yes. A real quick answer to that, yes, we're absolutely comfortable with the guidance for the year. I'd -- we're on track, Glenn. It's -- yes, I'd like to go even faster. As I've said before, we're even investing heavily in capacity expansion and so forth to anticipate even greater growth in the future. And I -- it's -- there's really nothing to compare it to. There's -- I think the whole space is getting increasing attention. And we have, as you know, carved out a very economic position that's extremely profitable for us, but we're in a very, let's call it, economically accessible price point, which has made the uptake and the reception by the patient or the consumer or even reimbursing bodies pretty attractive. And I think we found a real value proposition point here with the product. Our manufacturing is extremely automated. It gives us a big advantage in terms of cost. And everything is kind of working well here. I'm pretty excited about this product. This -- it's got so much potential because I think a lot of times, whether it's a pharmaceutical or medical device, et cetera, they can be expensive in the health care system for recovery of cost and so forth because the numbers of patients may not be that great. And yet, there's a lot of diabetics in the world, including me. And there's millions that are insulin-dependent and millions that don't want to be insulin-dependent, et cetera. This product hits the sweet spot. And to be a mass-market product, it's got to be accessible. It's got to be affordable. And it's got to be affordable in a way that it's not hard for people to commit to it, use it and find out what it can do for them and so forth. So I'd say that's all going super. We like the split we're seeing of type 1s versus type 2s. We're probably globally about 2/3 type 1s and 1/3 type 2s. I think that's a pretty good mix, and it speaks to the clinical efficacy and the benefits of the products and the 2 different types of users that benefit from it. So at this point, it's all about how fast can we run. And I think the uptake by consumers, the retention, the repeat, all that, all of our data says this is going well. And as I indicated to you, we'll go out at the end of the year with more than 1 million patients worldwide, a significant number in the U.S. I think we'll probably be -- well, we are so far and away the global leader in this space now. It's almost -- there's no way to kind of look at share. We've looked at, what you call, sensor days. How many -- if you take the sensors, numbers of patients, whatever, and how many days of testing you get out of that, we're already well above 90% globally. And it's -- there's nothing to compare to. It's -- and it's a huge market. So I think that just the opportunity here -- we're comparing to us and how fast we can run. And that's really an exciting product, I'll say. It's nice to see a product that has that kind of impact, and this one is just fun. It's just fun.

And then let me just one quick follow-up. Can you discuss what's next in terms of features for Libre and timing?

I could, but I'm probably going to -- I'm probably not going to set any expectations around that because I don't want to create trigger points or talking points or whatever -- catalyst. I don't know all the terms you guys like to use. There are a number of things that we have planned in place, done the work, et cetera, for enhancements to the product, obvious ones, some of which are already available overseas. It's a little different challenge working through the FDA here in this country. And so I don't want to get into the space, but -- or the discussion. But yes, we got plenty of enhancements and thoughts here for advancing the product still further, Glenn.

And our next question comes from Rick Wise from Stifel.

Maybe starting off with a big picture question. You, in some of your earlier comments, sort of lightly touched on this. But when we think about your priorities right now, should we imagine that you're focused, now that everything is coming along, should we expect you to be largely focused just on continued execution with the portfolio you have? Or do you think the portfolio is in good shape as it exists? Or are you thinking about not just M&A? And of course, I'm always interested in hearing about your interest in opportunistically adding technology or inorganic growth. But with your existing portfolio, are you more -- now more aggressively looking at the pieces you have and thinking you might be more actively thinking about trading out, the net benefit of which would be to enhance growth and/or margin? Both ways, in and out.

I get this question in one form or another on every call and every visit to investors and so forth, and it's always a fun, speculative question. But the honest answer is, look, I think we did some very deliberate shaping of the company, let's say, since the AbbVie split over the last 6 years. And that's not been accidental or reactive or opportunistic. It's been with intent and a plan and so forth. At this point, I also think companies can get a little too transactionally oriented. Everything is a transaction as opposed to you got to run it and run it well. So philosophically, here's how we operate. Our first baseline is we've got to operate and execute well organically as a company. I know it's a word we've used a lot today, but I want to make a distinction between what we do as part of the ongoing operating of the company versus transactions one way or the other. And our whole goal has been to establish the company with its own internal growth drivers, productive R&D, productive innovation, productive positioning in the right markets, the right segments, the right growth things because our investors expect us to make them money and do well with their investment and grow the company. So we position ourselves pretty deliberately and intentionally in those kinds of spaces across the board. I don't know that you're ever done and I don't know that you ever feel totally comfortable. You shouldn't, but I think we're in a pretty good place that way. We've got a lot of what I would say was our intentional repositioning done. That means for us that we got to integrate it all. We've pretty much done that. I mean, the integrations of St. Jude and Alere, pretty well done. I mean, it's finished. There's not -- other than capturing synergies as we go and establishing R&D pipelines where they may not have existed and so forth, speaking primarily of Alere, they are not St. Jude because St. Jude has got a robust pipeline. Those kinds of things, it's all about the ongoing delivery of new technologies, new products, new innovations, improvements in the ones you have and so on. So over these last 6 to 8 years, those R&D pipelines and everything have been well established, not just within Abbott but within St. Jude, too. So we like the hand we're holding. And that means you got to make sure that, as a baseline, you can deliver your company's strategic goals. And in our case, it does. So that means any transaction for us becomes opportunistic. And does that opportunity fit us strategically? Is it something we're prepared to react or respond to? We'd like to be in a position where it's a choice, not a necessity per se. And I think that's where we are. And right now, we've said, for this period of time, because we took on a lot of debt to conclude the St. Jude and Alere acquisitions, we wanted to pay down that debt. Well, we're way ahead of schedule paying down our debt, as you know. And shortly here, we'll -- we wanted to pay back $8 billion this year. We're just about there. And we'll be there well before year-end in terms of debt paydown because we've had really good cash management, really good cash flow, et cetera. We've been able to pay a dividend. We'll raise our dividend at some point. We'll have a steady march with our dividend, like we always do. We've been able to fund the capital expenditures internally that drive our growth in our business. We've got some heavy capital investment right now in both Libre and Alinity, and I anticipate that will continue to be the case. But it's not an affordability issue for us. So I think our priorities in terms of cash use and investment internally, we're easily making. We're easily making those goals. So we can afford to be opportunistic if something attractive comes along, but I would tell you that I haven't seen anything that compels me or is sitting on the edge of our radar screen at this point. The single biggest opportunities we've got are all in our own pipelines and in our businesses now and in the markets we're in. The biggest opportunities we've got are right in front of you. The question is, how big and how fast and those trends -- what we think we see going forward looks awfully attractive. And if at some point, well, how far would you take debt down? How far would you pay down debt? What are you going to do when you hit the point where you think that, that's enough? And I think there's a couple of answers to that. A lot of people seem to get comfortable somewhere between $15 billion and $20 billion. I remember with $15 billion of debt, still a hell of a lot of debt. And so I think -- and I also observe, as many of us have, I think you analysts as well, share buybacks right now aren't particularly economic. And they're not paying off all that well in the market. So you try to make your moves at prudent times. I think right now, prudence for us, we've got -- we always have our periscope up looking at what's on the reader screen out there. I think there's places in Medical Devices and other things where we might opportunistically think there's something that would be a nice addition to our portfolio. But I don't think anybody should be holding their breath waiting for a great big move here. I like the portfolio we've got. I'm always questioned about the portfolio because everybody wants to help me tweak it, but it's a pretty strong portfolio because all the businesses are operating well. And for the most part, they're at the early stages of growth cycles driven by new product innovations and technology innovations and so forth that are pretty healthy. Because we've got a higher index in emerging markets than a lot of companies, we're going to endure that bumpy road, but the underlying development of those economies in health care systems has been a big plus for us, both for pharma and nutrition. And honestly, it is in devices and diagnostics, too. There are some of those markets that don't economically work in those businesses, but some do. So I think our platter right now says we can afford to just be opportunistic. I don't have big M&A on the radar screen or big transactions on the radar screen. I'd say from a capital or cash allocation standpoint, I'm going to keep paying down debt because I think that's a prudent path for now. I always like having maximum strategic flexibility for the company. I think our path here is clear. We've been prudent about when it's good to buy back shares and when it isn't. I think our capital allocation has been pretty good. And the good news is we got plenty of cash and capital to have choice, and we can afford to be that discretionary about it. There's a constant stream of friendly investment bankers in and out always telling us what's coming on the radar screen, so I don't think we're missing anything. And right now, I like our portfolio a lot better than I like somebody else's.

Yes. Appreciate that comprehensive answer. Just last for me. You had a couple of notable...

That means I talk too much, right, Rick?

I would never say that, Miles. No, really, it was very helpful. You had a couple of notable new product approvals this quarter, the next-gen MitraClip and XIENCE Sierra. XIENCE Sierra is coming in the context to a vascular business that did slightly worse this quarter than the first quarter. Structural Heart, obviously, incredibly strong, accelerated. Just -- so maybe a little color on what we should think for MitraClip. Does the bigger reach open up more procedures? Does it accelerate growth? Does XIENCE Sierra get you back on track in Vascular? I'll stop there.

Okay. Sure, thanks for the question, Rick. Yes, I think MitraClip definitely opens up to more patients just because of the size changes and so forth that we've got more flexibility with that product. And any time you can do incremental improvements of products and enhance them further, you're extending their reach, extending their life, their -- the competitiveness, et cetera. So I think all that's good for our Structural Heart business, and then we got more things in our pipeline coming. The XIENCE Sierra, okay, early returns in Europe. Excellent and performance excellence. I think same with Japan. We've just launched in the United States, so all I've got is anecdotal feedback. The U.S. and Japan and Europe, they're not the same, but they're close. So I expect Sierra to do well in the United States. When you say, "Will it get you back on the track?" I think the track in the stent business is the low single digits at best. I don't think -- there's always a lot of competition in this business. We've talked about that. There's 3 or 4 pretty strong competitors here. I think the market has kind of said, look, the multitude -- the magnitude or the base magnitude of innovation has been had. There's incremental improvements we can all make, but it's a very competitive space. So I think being on track here is low single digit. And that's at least right now what I'd kind of expect out of this. And I expect XIENCE Sierra to claim its share of the market, do well, be more than competitive, and we'll see that. We're seeing it in Europe. We're seeing it in Japan. So I expect to see it in the U.S., too. But I don't think this is a space where there's gigantic quantum leaps in offerings. But it's one of those very strong, very profitable important legacy cornerstones of the device business that's important for us to maintain our leadership in and our competitive position in. And I think XIENCE Sierra definitely kind of puts us back on that track.

And our next question comes from Joanne Wuensch from BMO Capital Markets.

Can we spend a moment or 2 looking at the Diagnostic business? Alinity has been launched in Europe for over a year. It's rolling out in the United States now. How should we think about that contributing and also the whole business holistically now that Alere is part of it?

Well, Joanne, Alere is part of the Diagnostics business, but it's not integrated in the core lab business. What we got here is kind of a collection of businesses by major segments. So I think -- and let me just take that last part first. I think the space that Alere expands us in, point of care and your patient testing, distributed testing, et cetera, which is also kind of a collection of spaces, I think we're in a very strong position. One of the things we'd like to do, obviously, is renew or update or enhance a number of products and so forth, and others put a lot more in innovation and R&D there. But we've got, I think, a very, very strong portfolio. Right now, I'd call it a stable portfolio that's at a low growth point, but that's not where we ultimately expect it to be. And since the time we acquired Alere, we've said for a while here, that's not going to be a high grower, but we expect it to be, and we do. And I'd tell you that so far, everything that you'd have to do to integrate a business, make it part of the company, put management in place that hasn't been there before, and so that's all gone exceptionally well, way faster than we might have thought. So we're really pleased with that business. We're really pleased with it in the portfolio. We're super pleased with how the management team there is doing. All good. All good all day, and we look forward to its contribution to our growth and innovation over the future here because I think that's exactly what it's going to do. Back to Alinity, there's a couple of things to kind of understand about this space or spaces. We don't always determine when the customer wants to buy or when the customer has to make a decision. So first of all, because these are big mainframe systems, core laboratories, blood screening, enterprises and so forth, they tend to be contracted or tenders that are 5, 7 or even 10 years. They're usually longer-term contracts. They're big installations. The change from one competitor to another, old systems, new systems, so forth, it's not quick. It'll take a couple of months and so forth. So these are big mainframe sorts of enterprise decisions, and we're kind of on their schedule. So we can do a lot to enhance that or even speed it up, which we're doing. The receptiveness to something new, if you're replacing old systems, depends on the completeness of your menu so that you can do a full swap-out and not have to run 2 different systems at the same time, et cetera, even though a lot of labs do. So those are just dynamics we deal with in the market every day. I'd say our menu in Europe is full and robust. It's a big menu in the U.S. and other countries. Not as big as Europe, but coming fast. And we're talking anywhere from 150 to 200 different tests here that have to be on that box, each of which have to be individually approved and licensed, et cetera. So that's -- we're in a really strong position that way in Europe. That menu ramp-up obviously takes a little bit of time. It takes a little bit of time in the U.S. and everywhere. So we're getting through that or past that now. The -- we're tracking, like you would in any capital business, prospects, which I think has more than, gosh, quintupled in the last several quarters here. And we're tracking close rates. If we're in a competitive situation where we are already in there, I think our win rate is about 97%. I mean, we're keeping everything that we've already got and then expanding beyond that. In places where we're trying to replace competitive systems, our win rate is well above 50%, and that's really good. From the standpoint of -- those accounts have to make a decision that they're actually going to swap out everything that they've had for a number of years. And to have that kind of initial win rate here is pretty strong. And so we like the win rates we're seeing both in retention and new instruments and new placements and expansions and so forth. And a lot of times, you'll get the first installation, then it expands from there. So I would say, all the metrics that we would track, including how fast it is to get up and running, test the record and so forth, they're all tracking exceptionally well. We're expanding our sales and service organizations in Europe as we speak. That hiring is going very well and very fast. It's a lot better than we did in neuromod, I can tell you that. We'll take a lesson there. And so the ramp-up is moving faster and faster now. We've got a very specifically detailed plan about how many, how fast, on what pace, et cetera, gosh, for years ahead here. And we've pretty well got every country mapped, every account mapped, et cetera. So now it's just a question of execution and how fast we can execute, and all that's doing really well. So I'm pretty excited about the path ahead here in the Diagnostics business on all fronts.

And my follow-up question is on your MitraClip franchise. We have the next generation product, which was just FDA-approved, and the COAPT trial reading out in September. Can you just give us an update on where that business is?

Yes. I'm going to ask Scott to help me with that, Joanne.

Yes. With respect to MitraClip, you can see the performance in the numbers there, and Structural Heart is doing quite well. We will get a read-out rate out on the U.S. COAPT trial data later this year, very likely at the TCT Conference in September. So that will be a big event for us. We're also doing quite a bit with respect to geographic expansion as well. We received national reimbursement in Japan here in the second quarter. That's a nice opportunity for us, too. That market is quite sizable. So MitraClip is hitting on all cylinders with a lot of growth in front of it.

So Joanne, I'd wrap up. I like the way Scott wrapped that up. It's hitting on all cylinders. Obviously, in a company our size and diversity, everything doesn't hit on all cylinders all the time. But I'd say right now, I think for the markets we have and let's call it, the exchange and the currency volatility we've all got out there and so on, I think the company is performing exceptionally well and feel pretty good about all the underlying performance and the strength going forward here.

And our final question comes from Chris Pasquale from Guggenheim.

Miles, just a couple quick ones here for me. One on the EPD business and the situation in Russia, I think you had previously said you still expected that to be a headwind in 2Q. Did that come back earlier than expected? And then just quickly on Diagnostics, the legacy Abbott Point of Care business has slowed a little bit over the last few quarters. Is that a function of the integration work being done there? Or is there something else happening?

Well, let me take the Point of Care first. Yes, there's a couple things going on there, and I'd say a little bit of it in integration. We had a number of management changes because we were populating the new Rapid Diagnostics business. So we had a lot of new over new over new there, and we may have lost touch with ourselves a little bit in the transition. And yes, there's a couple customer dynamics, big accounts and so forth, where we had some challenges that have since been addressed. So I expect that to improve. I don't think that's a long-term condition. But yes, we've had a couple of, let's just call it, slip-ups here that slowed our growth rate. And I think we'll be seeing that come back to much healthier growth rate. With regard to Russia and EPD, I'm going to get a little bit of help here from Scott and Brian. But generally, I'd say, look, yes, it's as predicted. I think it's -- we're seeing the cycle pass through here in the second quarter, but I don't know that it's completely done. But everything we kind of thought would play out is or has. And so we're seeing that come back to, let's call it, a better position. You guys can add anything.

Yes. I would just add, our end customer demand remains in line with our expectations. We're tracking that. And I'd say, this quarter, we actually returned to growth in Russia, which is a good sign based on the stabilization we're seeing and how the destocking has progressed as we had planned thus far.

I'm actually kind of surprised we got it that close. Usually, you try to break these things and you're never right. And it's actually turned out to be more right than we thought.

Well, thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of the call will be available after 11 a.m. Central Time today on Abbott Investor Relations website at abbottinvestor.com. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.